BUS 3301: FINANCIAL ACCOUNTING || WITH
ERRORLESS SOLUTIONS 100%.
Which of the following characteristics is considered to be an advantage of the corporate form of
organization?
Avoidance of double taxation
Limited liability of stockholders
Low level of regulation
The absence of a perpetual existence correct answers Limited liability of stockholders
Stockholders are only held liable for the amount of their investment. Double taxation and high
regulation are considered to be disadvantages. Corporations have a perpetual existence.
Of the following characteristics, which is generally not regarded as a right of common
shareholders?
Preemptive right
Voting rights
Preference in liquidation
Transferability of shares correct answers Preference in liquidation
Common shareholders are entitled only to the residual interest in a liquidation; creditors and
preferred shareholders have the preference. In the absence of modification, common shares hold
a preemptive right, have voting privileges, and are readily transferable.
If 1,000 shares of $10 par-value common stock are issued in exchange for land with a fair market
value of $25,000, the land and common stock (along with any additional paid-in capital) should
be recorded at:
$0
$1,000
$10,000
$25,000 correct answers $25,000
Stock issued for assets should be recorded at the fair value of the stock or assets, whichever is
more clearly determinable.
Jackson Corporation has 500,000 shares of common stock outstanding. On April 10, the board of
directors declared a $0.60 per share cash dividend, to be paid to stockholders of record on April
25. The dividend was distributed on June 6. The proper journal entry to record on June 6 is:
Dividends Expense 300,000
Cash 300,000
Dividends Payable 300,000
Cash 300,000
Retained Earnings 300,000
Cash 300,000
Dividends Payable 300,000
Retained Earnings 300,000 correct answers Debit Dividends Payable 300,000
,Credit Cash 300,000
Dividends omitted on preferred shares that must be paid before common shareholders are
entitled to be paid are referred to as:
Participating
Callable
Cumulative
In arrears correct answers In arrears
Dividends omitted on cumulative preferred stock are called dividends in arrears. Participating
preferred stock shares in excess earnings of the firm, and callable allows the corporation the
option to reacquire its shares at a set price.
Magic Corporation paid $100,000 in dividends. The corporation had 10,000 shares of common
stock outstanding and 5,000 shares of $100 par value 5% preferred stock. The preferred stock
was two years in arrears prior to the current year. How much was paid to the common
stockholders?
$0
$25,000
$50,000
$75,000 correct answers $50,000
Of the $100,000 total dividend distribution, $75,000 is for preferred stockholders. The $75,000
consists of $25,000 for the current year ($100 X 0.05 X 5,000 shares), and $50,000 for the two
years of dividends in arrears.
Which of the following statements about treasury stock is false?
Gains are not recorded on treasury stock transactions, but losses are.
Acquiring treasury stock causes stockholders' equity to decrease.
Treasury stock is reported as a deduction from stockholders' equity.
The excess of the sales price of treasury stock over its cost should be credited to Paid-in Capital
from Treasury Stock. correct answers Gains are not recorded on treasury stock transactions, but
losses are.
Treasury stock transactions are capital transactions, not income activities; therefore, neither gains
nor losses are recognized. Acquiring treasury stock decreases stockholders' equity by the
purchase price. Further, treasury stock is subtracted from stockholders' equity, and Paid-in
Capital from Treasury Stock is credited for the sales price in excess of cost.
Elmer Company has 500,000 shares of common stock authorized. The stock has a par value of
$1.50 per share, and 150,000 shares are outstanding. The company declared a 5% stock dividend
at a time when the market value was $7 per share. What entry, if any, should Elmer record for
the declaration?
No entry
, Retained Earnings 11,250
Common Stock 11,250
Retained Earnings 52,500
Stock Dividend Distributable 11,250
Paid-in Capital in Excess of Par 41,250
Stock Dividends Payable 11,250
Retained Earning 41,250
Common Stock 52,500 correct answers Retained Earnings 52,500
Stock Dividend Distributable 11,250
Paid-in Capital in Excess of Par 41,250
For small stock dividends (less than 20%), Retained Earnings is debited for the fair value of the
declaration (150,000 shares X 5% = 7,500 shares; 7,500 shares X $7 = $52,500). Stock Dividend
Distributable is credited for the par value of the shares to be issued (7,500 shares X $1.50 =
$11,250). Paid-in Capital in Excess of Par Value is credited for the difference ($41,250).
A ____________ is an artificial being, existing only in contemplation of law. correct answers
corporation
A ____________ is a corporation which has shares of stock owned by relatively few persons.
correct answers Closely held
The taxing of income to the corporation, and the subsequent taxing of dividends to the
stockholders is commonly termed____________. correct answers double taxation
The feature that allows a corporation to reacquire stock, at the corporation's option, is commonly
known as the ____________ feature; the feature that allows the shareholder to exchange
preferred shares for common shares is called the ____________ feature. correct answers call,
conversion
The significance of par value is that it represents ____________ per share of stock. correct
answers legal capital
The ____________ is the date that corporate records are reviewed to determine who will receive
a previously declared dividend. correct answers Date of Record
The number of shares that a corporation is permitted to issue is termed the ____________ shares,
whereas the number of shares actually issued and held by stockholders is termed ____________
shares. correct answers authorized, outstanding
For a preferred stock to have dividends in arrears, it must be ____________. correct answers
cumulative
